I I4D Magazine I June09 Microfinance India


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Special Microfinance Issue brought out by I4d - The first online monthly magazine on Information Communication and Technology

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  1. 1. Vol. VII No. 6 June 2009 The first monthly magazine on ICT4D Microfinance: Leveraging ICTs ICTs for Microfinance One billion opportunities Banking the Unbanked Globally Information for development Microfinancing Ghana w w w. i 4 d o n l i n e . n e t Microfinance Sector in Ghana Microfinance : The Road to Self-sufficiency ICTs and Microfinance ISSN 0972 - 804X knowledge for change
  2. 2. Contents Vol. VII No. 6 June 2009 Mail box Features Rendezvous 5 Editorial et Fueling the growth 43 Global Conference on Financing the Poor: Moving info@i4d online.n Beyond Inclusion, 29 December, ICTs for Microfinance 6 Microfinance: Leveraging ICTs 2009, New Delhi, India Sabyasachi Kashyap Exploring the impact of microfinance Dinoj Kumar Upadhyay Banking the Unbanked Globally 12 One billion opportunities The i4d magazine is an extremely useful resource for those of us who are practitioners Gautam Bandyopadhyay Interview in the field of ICT for D. It is well produced, and has informative and enlightening content 16 Microfinance in India Microfinance: A bigger picture 10 Rita Soni, Senior Vice-President, which is very helpful for us to keep up with changes and developments in the field. Many Ritu Srivastava congratulations to the team! YES BANK Inclusion through Prashant Sharma Microfinance Sector in Ghana innovation Deputy Executive Secretary and 19 Microfinancing Ghana Communications Manager Veronica Agodoa Kitti Mountain Forum Secretariat, ICIMOD, Nepal Accounting System in Orissa Columns 26 Panchayats e-Cashbook in Orissa panchayats I have been reading the two previous issues of your magazine and found them really very Shreemanta Kumar Samal, Sanjay Prakash Sahoo 45 What’s on informative. I would like to thank your team for such a valuable magazine on ICT4D. In Fact 46 Microfacts about microfinance Mahendranath Busgopaul Internet Child Safety Foundation, Mauritius 29 Microfinance and Gender Equity Money for women by women Ritu Srivastava I take this opportunity to thank for the whole i4d team for the wonderful edition of the ZERO MASS Foundation 32 Development initiatives community multimedia Gender and ICTs. Loknath Panda Snapshots of Hara Padhy UNESCO, Paris Best Microfinance Institutions microfinance 34 Forbes magazine’s top 50 MFIs solutions I have been very regularly getting i4d issues. Thanks for the efforts put by i4d team. I got FAO-GTZ Microbanking System 40 Technology for microfinancing an invitation to write an article in the magazine International Federation for Information Processing (IFIP). They have made a mention 41 National Bank for Agriculture and Rural Development News that they are writing to me after reading my article on Network community services in Search ICT4D news by date in the sectors of governance, rural India in i4d. Thanks for introducing me (NABARD), India health, education, agriculture and so on. Banking for All to the network!!! E-mail Dr. N.S. Vasanthi Subscribe to daily, weekly, monthly newsletters online or Professor and Head, send request to Department of Biotechnology, 23 Microfinance News Bannari Amman of Institute of Technology, Print edition 38 India News The past issues of the magazine are available online Tamil Nadu, India, 39 World News New! Please continue to send us your Knowledge bank valuable feedback to help us of serve you better. books on ICT4d 25-27 August 2009, Hyderabad, India
  3. 3. Subscription Form EDITORIAL GUIDELINES SUBSCRIBE Information for development TODAY! i4d contains articles, case studies and essays on the theme of ‘ICT for development’ Duration Issues News stand Subscription Saving Subscription and related issues. Authors are requested (Year) Price Rs. Rs. US$ to follow the guidelines while sending 1 12 2400 2160 10% (Rs. 240) US$ 200 their articles to i4d. Please also consult the 2 24 4800 4080 15% (Rs. 720) US$ 320 editorial calendar to choose the theme of 3 36 7200 5040 30% (Rs. 2160) US$ 400 your interest. We also accept soft or hard copy submissions of your contributions. We encourage you to share your original research with our readers. The Editor’s decision to select, accept, modify or adjust your write-ups due w Nocribe to space constraints will be final. subs ne! Editorial guidelines are available at onli Editorial_Guidelines.asp All correspondence should be I/We would like to subscribe for 1 2 3 years. addressed to: (circle as applicable) First name............................................................................................ Last name .......................................................................... The Editor-in-chief, i4d Designation/profession ........................................................................ Organisation ...................................................................... G-4, Sector-39, Noida, India Mailing address ................................................................................... City .................................................................................... Tel +91-120-2502180 to 85 State ................................................... Country ................................ Postal code ......................................................................... Fax +91-120-2500060 Tel (o) ................................................... Tel (r)................................................................. Fax .......................................................... Email Email ................................................... Website ............................................................................................................................. Payments for mailed subscriptions are only accepted via cheque or demand draft. Cash payments may be made in person. (tick one and fill as applicable) Please find enclosed my/our cheque/demand draft numbered dated ......................... for Rs......................................... in favour of CSDMS a/c payable at New Delhi. I am submitting this form in person and paying by cash CSDMS team Please use photocopies of this form as required. i4d news i4d, G-4 Sector 39, Noida 201 301, India Tel +91 120 250 2180 to 85 Fax +91 120 250 0060 Now Email available in daily, i4d Editorial Calendar 2009 Month Theme weekly, January Rural BPOs and monthly Feburary e-Agriculture email newsletters! March ICT in Climate Change April ePanchayat Subscribe at May ICTs in Elections June ICTs and Microfinance July Agriculture August Mobiles for Development 4 i4d | June 2009
  4. 4. Editorial Fueling the growth Now that it has been widely accepted that microfinancing does not have to be an enterprise that runs on a not-for- profit basis, the challenge that faces us today is to make Advisory Board microfinance more accessible, customised, and effective Dr M P Narayanan, Chairman, i4d while ensuring sustainable growth of the sector as a whole. Chin Saik Yoon Southbound Publications, Malaysia Karl Harmsen It has been rightly said that sound microfinancing strategies have the United Nations University potential to alleviate global poverty. But to do so, we have to find ways Kenneth Keniston to reach the millions of unbanked and under-banked households Massachusetts Institute of Technology, USA who desperately need this support to get out of poverty and stay above the poverty line. Nagy Hanna e-Leadership Academy, University of Maryland, USA Richard Fuchs Several questions need to be answered and a similar number of challenges have to be IDRC, Singapore overcome to reach our goals. With the aid of modern ICT tools it is possible to reach the last Walter Fust mile and also serve the population living in remote areas. But technology is just one of the Global Humanitarian Forum, Switzerland components of this intervention with connectivity taking the lead among the related loops Wijayananda Jayaweera UNESCO, France that need to be closed, apart from the capacity building needs for the population to be served. EDITORIAL BOARD Equally important is the creation of enabling policies that allow and, if required, Akhtar Badshah, Frederick Noronha incentivize the setting up of Microfinance Institutions (MFIs). Also imperative is strong EDITORIAL TEAM regulation and monitoring of these MFIs to curb the incidences of MFI operators Editor-in-Chief Dr Ravi Gupta running away with the savings of their victims. Since the target demography has Assistant Editor Sandeep Budki probably never been exposed to banking services, they also require financial education. Research Assistant Subir Dey Sr. Graphic Designer Bishwajeet Kumar Singh None of these issues can be taken in isolation and have to go hand in hand to provide Graphic Designers Om Prakash Thakur, Shyam Kishore succour from poverty to the disadvantaged citizens of the world. Web Programmer Zia Salahuddin i4d G-4 Sector 39, NOIDA, UP, 201 301, India In this issue, we have tried to bring to you varied perspectives of how different countries, Phone +91 120 250 2181-85 Fax +91 120 250 0060 Email Web organisations and government agencies are combating poverty through financial inclusion Printed at R P Printers, Noida, India with an eye on gender equity. We hope you find this issue informative and thought provoking enabling us all to find new ways to meet the challenges that lie ahead. i4d is a monthly publication. It is intended for those interested and involved in the use of Information and Commnication Technologies for development of underserved communities. It is hoped that it will serve to foster a growing network by keeping the community up to date on many activities in this wide and exciting field. i4d does not necessarily subscribe to the views expressed in this publication. All views expressed in this magazine are those of the contributors. i4d is not responsible or accountable for any loss incurred directly or indirectly as a result of the information provided. Dr Ravi Gupta Centre for Science, Development and Media Studies, 2008 Except where otherwise noted, this work is licensed under a Creative Commons Attribution 2.5 License i4d is supported by: June 2009 | 5
  5. 5. ICTS FOR MICROFINANCE Microfinance: Leveraging ICTs This article suggests Over the last decade or so, the world seemed to have woken up to the reality and fund transfers. In the last few years of its existence, many organisations have jumped the ways through that to empower the rural marginalised communities and to alleviate the poverty onto the microfinance bandwagon which includes not-for profit NGOs, development which the existing scenario in the world, they need to be given opportunities to save, borrow and professionals, corporates, commercial banks, international donor agencies, etc. ICT tools and repay loans. Till a few years back, banking institutions, for the purpose of offering The reasons for the enthusiasm varies from the belief that microfinance offers a good technologies can banking services to the marginalised, experimented with subsidised credit developmental alternative to the belief, especially among the commercial banks, bring the poorer which affected the overall performance of the banks and contributed to the rise who have opened microfinance branches for their microfinance operations, that section of the in Non-Performing Assets (NPA). Thus subsidised credit as an option gradually microfinance offers a good, sound banking option. The government has also routed society in the ambit lost its popularity among banks. Moreover more than the cost of credit, it was access various developmental schemes through microfinance. Microfinance leaders are of the microfinance to credit which was considered as the major barrier for the poor. With little or no gaining prominence and it is said that some of the leaders, particularly women, services means to afford the collaterals/mortgages, the poorer section of the society had to have been taking a more active role in other social spheres, including contesting resort to unscrupulous moneylenders for elections for the panchayat and so on2. loans which pushed them further into the The microfinance sector has grown vicious cycle of indebtedness. The reason exponentially over the past few years and behind this was access or the lack of it and the World Bank estimates that there are not interest rate. now over 7000 Microfinance Institutions Microfinance has come to be recognised (MFIs), serving some 16 million poor as the most viable, efficient and result- people in developing countries. The oriented mode of financially empowering total cash turnover of MFIs worldwide the poor. For Robinson “Microfinance is estimated at US$2.5 billion and the refers to small scale financial services potential for new growth is outstanding. for both credits and deposits – that are It is estimated that worldwide, there are provided to people who farm or fish or 13 million microcredit borrowers, with herd; operate small or microenterprises USD 7 billion in outstanding loans, and where goods are produced, recycled, generating repayment rates of 97 percent. repaired, or traded; provide services; work It has been growing at a rate of 30 percent for wages or commissions; gain income annual growth3. from renting out small amounts of lands; However, several issues and impediments vehicles, draft animals, or machinery and to the success of microfinance as an tools; and to other individuals and local industry have cropped up, the primary of groups in developing countries, in both them being: scalability and sustainiblity rural and urban areas”.1 Microfinance of MFIs, and outreach and impact of the also entails the condition of sustainably microfinance initiatives. Thousands of Sabyasachi Kashyap delivering the services and is not merely MFIs around the globe are realising that the confined to credit (microcredit) but solution for the scaling up, and ensuring encompasses in its range savings, insurance, maximum outreach and sustainability of i4d | June 2009 6
  6. 6. palmtop computers is typically uploaded to the MIS at the end of the day, either directly in the branch office or via a remote communications link. Furthermore, the roll-out of wireless broadband infrastructure will enable these systems to be always online resulting in true real-time data collection and monitoring of the loan portfolio at branch and institutional levels. Correspondent banking One of the key challenges for MFIs is providing financial services to clients in remote areas including rural areas where the population density is low, the market is smaller and providing service entails high costs. Correspondent Banking – whereby a bank links itself with third party merchants located in remote areas – has emerged as a solution for this problem of outreach. Correspondents manage transactions on behalf of the partner Photo Credit: CARE India institution and are remunerated on a fee-for-service basis. Bank Correspondents are expected to be having long-term businesses, MFIs lies in leveraging the benefits of technology, more specifically and should be respected and trusted in their communities. The information and communication technologies (ICTs). ICTs have Bank Correspondents should also be ‘ICT-enabled’; generally opened new window of opportunities for the MFIs to reach out to equipped with equipments such as an Electronic Funds Transfer at more people, controlling the risks making the business sustainable, Point of Sale (EFTPOS) device, barcode readers and/or keypads, a and bringing down the costs of operation. With new softwares personal computer, etc. They are linked to the partner institution’s specially designed to cater to the needs of the MFIs, mobile servers using a telephone line, cable or satellite link. Post offices, phones, efficient Management Information Systems, among supermarkets, general stores, grocery stores, telecentres, etc, are others, technology can and will in the near future bring about a good examples of Banking Correspondents. In India, commercial paradigm shift in the domain of microfinance. banking entities like State Bank of India, HDFC, have tied up with the respective Service Centre Agencies(SCAs) in the states ICT usage for MFIs under the framework of National eGovernance Plan (NeGP) to The current discourse on and practice of microfinance has provide Banking Correspondent status to the Common Service inevitably redirected itself through the ICT route for maximising Centres (CSCs) equipped with ICT infrastructure and provide outreach and ensuring sustainability. Adoption of ICTs also brings microfinance services through them. about business processes re-engineering because they povice efficient, transparent and cost-effective mechanisms to run the Credit cards, and ATMs business of MFIs. MFIs have readily adopted ICTs for they have In today’s world of banking, consumer credit cards are an been looking for a change agent that will harness the benefits of indispensable part of the bouquet of services offered by a financial ICT tools for best possible management and reduce costs, time institution. Some of the advantages of consumer credit cards and efforts. are reduced costs associated with small transaction lending, unsecured credit, small transactions, and pre-defined credit Management Information Systems (MIS) limits. Other salient features of credit cards include on-demand To monitor the quality, sustainability, and efficiency of the loan borrowing, re-draw facility, and repayment flexibility within portfolio, to measure its development impact, and properly pre-defined guidelines. Since these services address the needs of manage the administration tasks of an MFI, computerised small borrowers also due to their potential to relieve them from Management Information Systems comes in very handy. MIS are their dependency on moneylenders for the same set of services the most fundamental aspect of an MFI’s hi-tech infrastructure that are not provided by MFIs. Due to this utility of credit and it is difficult for an MFI to upscale significantly and maintain cards the concept of Microcredit Cards have emerged and with the accuracy and transparency of its loan portfolio without an more opportunities. A credit card enabled MFI can implement MIS that can grow with the institution. There is no denying the microfinance tuned credit-scoring alogrithm which ensures fact that an appropriate backoffice MIS is the backbone of ICT that clients who have proved their credit worthiness over time innovation for the delivery of microfinance services. through successful business transactions with MFIs can have their However, for MIS to really contribute to the efficiency of the credit limit increased and be given access to additional sources MFI, it has to be accurate, and up to date. MFIs find it difficult of credit. Smart cards have an embedded computer chip that can to maintain updated records as they have their offices in remote store client and transaction data, as well as process information. locations which rely on manual data-entry and paper based Smart cards function as electronic passbooks, thereby reducing transaction records. ICT innovations like mobile computing reliance on printed receipts. However, the introduction of card applications and palmtops at the hands of the loan officers who based services would demand setting up of EFTPOS functionality can directly record the transaction into the MIS can make this and/or Automatic Teller Machines (ATMs). Because all relevant system more efficient and up to date. The data entered into the client data is stored on the card, June 2009 | 7
  7. 7. the options because of the ubiquity of its use and popularity even among the poorer section of the society. It is estimated there will be three billion mobile subscribers in the world by 2010. World GSM Association, further adds that mobile phone is the first and only communication technology to have more users in developing countries than in developed countries. Mobile phones have become mobile wallets by facilitating electronic payments in exchange for goods and services. m-Commerce has assumed tremendous significance under the circumstances and this development in m-commerce has positively affected the microfinance industry also with usages like facilitating savings deposits, loan repayments and other funds transfers. For the cost of sending an SMS message, the phone user/microfinance client uses an application stored on his mobile phone to initiate a transfer from his mobile phone account to his bank account. Microfinance softwares In tune with the emergence of service delivery technologies, various softwares have also been developed by technology innovators helping the microfinance industry to tackle challenges associated with efficiency, transparency, outreach and sustainability. The softwares and tools like, FINO (Financial Information Network and Operations), SafalFin, etc., vary in their nature and function. However, their utility to the smooth functioning of the operations are subject to speculation as some of the softwares come with high investments which a startup MFI may not be in a position to afford. However, low cost solutions like Computer Munshi System developed by an Indian NGO named Pradaan has promised to address this issue of affordability for MFIs. Built at low cost, this MFIs can utilise EFTPOS systems and ATMs that do not software aims to improve book keeping of the Self Help Groups need to be always online. This is a significant advantage in areas (SHGs) as also to improve transparency, equity and longevity of where telecommunication services are unreliable and/or expensive. its groups. The model basically aims to improve the accounting One more value addition to the services of MFIs are the use of and book keeping of the SHGs.4 biometric technology (such as fingerprint scanners) which ensure client identification as well as privacy and data security. Conclusion In a nutshell, various experiments for integrating microfinance Internet banking and ICT have been undertaken and even more numbers are Internet Banking, in many ways, has revolutionised the banking going to come in the future. The issue however, is to enable scenario as it provides clients with real-time information about the MFIs to meet their goals by helping them have maximum their accounts, and the ability to transfer funds between their outreach, be sustainable and be transparent in their business accounts. It has become an integral part of the banking operations and processes. ICT can only be an enabler, and not the driver, and by giving clients the liberty of using their own convenient and the real success of MFIs has to be measured vis-a-vis their time to bank, and that too without having to visit the bank, it has social performance and not by their ICT/technology readiness become an empowering tool. MFIs, however, face the challenge and preparedness. of limited or more often than not no access to Internet services of their clients. The rural telecentre network, being rolled out References: across the developing world, could come in handy here too, by 1. Robinson, Marguerite S, ‘Microfinance: the Paradigm Shift from Credit Delivery providing access to the clients. to Sustainable Financial Intermediation’, in Mwangi S Kimenyi, Robert C Wieland and J D Von Pischke (eds), 1998, Strategic Issues in Microfinance, Mobile banking Ashgate Publishing: Aldershot Cellular phones, especially with GSM backbone, due to its 2. Microfinance: An Introduction by R Srinivaan and M S Sriram in Round Table, accessibility and affordability are becoming an indispensable IIMB Management Review, June 2003, (Pg-52-53) communication tool for the poor in the developing countries. 3. Hari Srinivas, The Global Development Research Centre (GDRC),http://www. As per the World GSM Association report, during the year accessed on 29-05-2009 2003-2006, more than 800 million mobile phones were sold in 4. Report of the Steering Committee on Microfinance and Poverty Alleviation, The developing countries. Mobile phones in today’s scenario have Eleventh Five Year Plan, (2007-08 - 2011-12), Development Policy Division, become the only option for communication from being one of Planning Commission, New Delhi, May - 2007, Pg-28 i4d | June 2009 8
  8. 8. te r Security Disas ent HIV/AIDS s gem and tool Mana ICTs Environmental 2.0 unity Web omm Cybercrim e using Concerns: C ent eWaste for owerm p Em ICTs for So ICT and Net cial MSMEs wor peace ks in Initiatives Inte rnet c Civi nal/ CTs sitio I The Fuel Crisis ppo ics and O it s tin g Giving Voices Community and Pol ICT udge ing and Assertive R ights: Climate Change er B eam Sexual and Radio end instr Reproductive R in Gd Ma ights an Safe Learning Drinking Water for and The O Grassroots Sanitation Move pen ICT ICTs and ment Statistics Innovations Food Security Ne w g nin Lear ys Internet Wa Governance Another year of i4d is here. A host of issues are to be talked about. Do you work on any of these areas ? Do you have a project that should be covered ? Are you an expert on any of the themes ? Are you interested to collaborate ? Write to us at:
  9. 9. INTERVIEW: RITA SONI, SENIOR VICE PRESIDENT AND COUNTRY HEAD - RESPONSIBLE BANKING, YES BANK, Inclusion through innovation In an interview with Sabyasachi Kashyap from CSDMS, Rita Soni talks about YES BANK’s foray into financial inclusion by banking and microfinancing through the Internet, ATMs, debit cards and mobile channels. Rita Soni Senior Vice President and Country Head-Responsible Banking, YES BANK As per the latest census, almost one fourth of the population in products and services to un-banked/under-banked, low-income India lives Below Poverty Line. What role do you see banking communities across urban and rural India. institutions like YES BANK playing here? As of March 2009, Wholesale Lending stood at USD 60 At YES BANK, we are working towards sustainable solutions to million with 16 MFIs, covering an estimated 500,000 clients in poverty through financial interventions by mainstream banking over 1000+ villages. YES BANK offers a comprehensive package activities. Utilising sustainable and mainstream approaches allows of banking and advisory services, dovetailed with the expertise of us to reach the scale which is necessary to reach the 800 million relevant business units within the Bank to use structured capital Indians living on less than US$2 per day. In our young bank, market products to help MFIs leverage access to cost-effective we have chosen to focus on ‘Responsible Banking’, promoting funds from a broader pool of sophisticated investors. The Bank financial inclusion and business solutions to social issues. works as a holistic financial solutions provider working with Where does financial inclusion fit into YES BANK’s scheme different stakeholders, i.e., mainstream investors, rating agencies, of “Responsible Banking”? policymakers and technology vendors resulting in an aggregation YES BANK is committed to creating equal financial opportunities of services, cutting-edge innovation and thought leadership and enabling financial inclusion, but it is our emphasis on required to create a conducive environment for growth of the innovation which is making the real impact. For instance, in industry. microfinance the vision is to go beyond offering plain vanilla YES BANK also stands out for its focus on urban poverty banking to providing the industry access to the mainstream capital using individual lending methodology in a market that has largely markets. This approach helps MFIs achieve scale at a lower cost executed group lending to rural women. One of the ground of funds, thereby resulting in affordable financial products for breaking features of our model is the fact that in setting up the the Base of the Pyramid (BOP). YES BANK has a two-pronged first institutionally sponsored direct intervention model for microfinance strategy to provide easy access to suitable financial microfinance, the Bank has created a benchmark institution that i4d | June 2009 10
  10. 10. becomes the reference point for what our wholesale practice strives a vision to address issues of rural India through the previously for in terms of helping transform partner MFIs into commercially mentioned innovative financial interventions, complemented with viable financial services providers for the BOP. Direct Lending is expert advisory services and thought leadership. These practices in accomplished through YES SAMPANN (Hindi for fulfillment), microfinance, ARSB, advisory and thought leadership go beyond currently in its pilot phase with a portfolio of 2000+ micro- the banking sector regulator, Reserve Bank of India’s (RBI) directed entrepreneurs. The business is projected to reach a client base of credit policy mandated through its Priority Sector Lending (PSL) a 1,000,000 with a portfolio size in excess of USD 100 million in requirement, and adopts the spirit of addressing poverty to the 5 years offering products such as micro loans for working capital, core. Below are specific examples where this combination approach insurance and savings schemes. has yielded results: In 2008, YES BANK worked with Jain Irrigation Systems Ltd. Across the world, there is widespread recognition that (JISL) to reach nearly 50,000 small and marginal farmers across information and communication technologies (ICTs) have India. As a testament to this ‘business solution to social issue’, tremendous potential in facilitating the inclusion of the the BANK conducted a comprehensive sustainability report for underserved/un-banked population into the banking network. JISL, outlining both the manner in which they operate as well as Can you share your views about this? specific social and environmental initiatives. Bridging the technology gap between the urban and rural Another important rural client is Buldana Urban Credit population through ICT is undeniably a step in the right direction, Cooperative Society. The financing from YES BANK reaches however YES BANK feels that unless discrepancies in the content, approximately 8,000 rural households across western Maharashtra. standards and delivery of basic, primary/secondary education and The Cooperative has a unique approach of ‘social banking’ which vocational training programmes are proactively addressed, the has built the institution and met the needs of its members. In effectiveness of ICT led initiatives will be greatly hindered. This addition to these financial services, the Bank conducted a detailed opinion and mode of thinking has spurred YES BANK to begin study of the approach, uncovering a gamut of best practices that forging working relationships with NGOs and social businesses can be applied by urban and rural banks. currently working in the education and ICT space to develop The Bank also plays the role of thought leader in several areas effective educational content, especially in the realms of financial including poverty issues. As an example, YES BANK and the literacy, in order to enhance the national curriculum and skills American India Foundation jointly wrote a report highlighting the development programmes in rural and urban India. social and economic issues surrounding rural to urban migration in the country. A key feature of the report ‘Managing the Exodus’ What are YES BANK’s initiatives in providing banking is ways to provide rural populations employment opportunities facilities to the underserved population in the rural areas? and social services through the public private partnership model In addition to the microfinance initiatives already mentioned, in a bid to mitigate their migration to urban areas. YES BANK also has a dedicated focus in the area of ‘Farmer In addition to financing Shriram Transport Finance Company Financing’. The Agri-Business, Rural and Social Banking (ARSB) Ltd. (STFCL), YES BANK facilitated an HIV/AIDS awareness team develops innovative financial models, which leverage the programme for their trucker clients. This programme brought the outreach of various stakeholders in the Agri Value Chain to Bank forward to form knowledge partnerships and synergies with address ‘last mile’ issues. In the last year, the Bank has disbursed the Clinton HIV/AIDS Initiative (CHAI) and the Red Cross. approximately INR 700 crores in direct farmer financing, The programme has reached out to 14 locations, 10 states and impacting approximately 140,000 farmers. ARSB works closely over 10,000 truckers who have been sensitized since this project with Swiss Re and Agriculture Insurance Company of India (AIC) began in October 2007. to facilitate the development and distribution of need-based insurance products for the agriculture sector, such as weather Are the branches operating in the rural areas providing insurance for grapes in the Nashik region. ‘anytime anywhere banking’ facilities? If yes, could you share As an example, YES BANK recently announced its partnership your experiences with this? with Zameen Organic, a farmer-owned producer company aimed A standard feature in all our branches, urban and rural, we offer at closer collaboration between farmers and companies to fortify ‘Anytime Anywhere Banking’ through the Internet, ATM, Debit inclusive and sustainable growth while building a transparent Card and Mobile Channels. Customers can also transfer funds supply chain. This alliance intends to create equal opportunities for at their convenience, from home or office, to over 53,000 bank producers and workers who have been economically marginalised branches across the country using the NEFT and RTGS facility. because of the conventional trading system. The business model They are also given complimentary multi-city payable at par empowers 6500 farmers to have effective and end-to-end control cheque books for ease of payments. Under the aegis of the ‘One on the ‘Fair Trade Organic Cotton’ supply chain which has resulted Branch’ model, customers can access their account from any of in improved economic condition of farmers from the Adilabad the 117 state-of-the-art YES BANK branches, at no extra charge. (Andhra Pradesh) and Vidharbha (Maharashtra) region. We were also one of the first few banks to offer complimentary access to over 32,000 ATMs in the country. Our technology edge Could you elaborate a bit more about your experiences in imparts ‘reach and easy’ access to our rural branches and our the rural areas? ‘anytime anywhere’ facilities have received encouraging response Within the Responsible Banking framework, YES BANK has in rural areas. June 2009 | 11
  11. 11. BANKING THE UNBANKED GLOBALLY One billion opportunities Introduction what banks can do to capitalise on this • Simplicity and speed in processing Look and you’ll see an exciting landscape opportunity. • Small product sizes when it comes emerging in the banking arena. One where to loans and low-balance savings there is a billion-strong market actively How to bank the unbanked accounts seeking financial services but remains In China and India only about a third of • Proximity and ease of access largely unattended to. These globally the population participates in the formal • Ba s i c f i n a n c i a l e d u c a t i o n o r distributed prospective customers represent banking sector. In Africa the number is just information since the unbanked enormous earning potential for banks, but 25 percent. India has the second-highest may not understand even elementary constitute the unbanked. number of financially excluded households concepts of banking The unbanked are those who do not in the world – 135 million – after China’s Most banks find it difficult to meet utilise banking services and have limited 263 million. Africa as a whole has 230 these needs because of the high economic banking needs. The unbanked are not million unbanked households, and Central cost of servicing these demands. However, the poorest of the poor. However, they and Eastern Europe and Latin America have a little out-of-the box thinking in devising certainly include those whom banks need 19 million and 42 million, respectively. products that are simple and accessible can to serve but cannot do so profitably in the But irrespective of where in the help ensure inclusive growth. existing banking environment. Though world they might be, this unbanked Some of these measures could include these consumers need access to banking section of society has similar needs for tying up with an NGO or with a retailer and for savings, loans and microfinance, they financial services. Apart from the obvious using village residents and empowerment do not have bank accounts. The reasons requirements of savings, loans, transactions, groups as representatives. These can for this are compelling. and investments, the unbanked have lower customer acquisition costs and • Lack of steady and substantial income certain special needs, which are: increase customer base, thus helping leading to a fear of insufficient funds • Flexibility in savings and repayment banks overcome the high cost challenge. for an account schedules owing to a lack of steady Such groups also help banks mitigate risks • Limited access to banks, especially in income associated with dealing with the unbanked. remote areas An estimated 2.6 million self-help groups • Lack of formal employment that in India are linked to banks, giving precludes a financial history financial institutions access to 40 million • Poor financial literacy • Psychological factors such as mistrust This paper aims to households. It is important that the products are of financial institutions educate the banking downsized without being downgraded to This unbanked billion is not outside the match the unbanked population’s smaller banking sector by choice. An important sector to reach out to requirements by offering low installments reason for their predicament is that banks and flexible repayment options. Banks do not offer them suitable products the unbanked masses also require performance metrics and tailored to their needs. In effect, they have regulatory conditions that are more suited been excluded by the banks’ inability to around the world to including the unbanked in the financial understand their requirements and the mainstream. unwillingness to adopt innovative models by giving examples Some banks are using inter-industry to serve them. However, this billion also constitutes from across the globe partnerships to increase financial inclusion. For example, banks in Brazil have added an enormous opportunity – if banks about initiatives of 100,000 point-of-sale locations to distribute are willing to accept the challenge of products by tying up with retailers. including them with an eye on the bigger some enterprising Not only are these channels cheaper for picture. This paper provides a regional banks but they are also more convenient perspective to this issue and examines banking entities for consumers. i4d | June 2009 12
  12. 12. Banks must realise – and they are seeing the light – that since Mobile banking is another way of reaching out to such customers the unbanked have remained unaddressed by traditional financial and is also a huge opportunity for banks in India. According to institutions, they will not hesitate to choose newer players for a TRAI report, the total number of mobile subscribers by March basic banking services such as payment and deposit transactions. 31, 2008 was 261.08 million as against last year’s 165.09 million Collaborating with telecom players, adding a mobile channel, and (an increase of 58.14 percent). This figure shows that in just utilising cross-selling opportunities will go a long way in meeting three years, the number of mobile subscribers has grown over 4.5 the needs of the unbanked. times. India is adding more subscribers per month than any other In many emerging economies, mobile consumers are growing at country. According to the GSM Association (Global Association a much faster rate than bank customers. Mobile banking is taking for GSM Providers), the next billion subscribers will come from off because it is convenient, fast, simple, and secure. Moreover, the BOP (Bottom of the Pyramid) market, of which India will it is a cost-effective option for banks. Gartner has estimated that have the largest share. The growth of mobile phone subscribers there will be 33 million mobile payment users worldwide in 2008, is outpacing the growth of banking customers as also PC and with the Asia Pacific taking the lead. Gartner expects this number Internet users in India. to triple to 103.9 million users in 2011. In 2006, banks were allowed to take the help of NGOs Other forms of branchless banking and e-payment gateways and microfinance institutions as intermediaries in offering such as payment cards and the Internet can also help banks increase banking services through the use of correspondents. This was their outreach. Banks need to experiment and include the next perhaps a factor for many banks that opened six million no frills billion consumers not merely for the socio-economic assistance accounts with low or zero minimum balances between March they will gain. The step will also have a strong business imperative 2006 and 2007. for banks. Not only will a bank increase its customer base, but ICICI Bank, HDFC Bank and Citibank have launched their it will also ensure increasing numbers of future customers as own microfinance programmes. HDFC Bank thus has tied incomes increase. up with NGOs in Andhra Pradesh and Tamil Nadu to make Let us examine how banks are reaching the unbanked in various financial services accessible to the rural poor. Citibank has linked parts of the world, namely, India, China, Eastern Europe, parts up with NGOs. Standard Chartered plans to lend $100 million of Africa, and Latin America. for micro-financing by 2008, up from current commitments of $40 million. India Banks are looking at technology to provide banking services at The Indian banking market is zooming, with assets expected to low cost – and this includes rural banking too. Citi has set up a reach $1 trillion by 2010. An expanding economy, a growing bio-metric ATM as a part of its ‘no frills’ Pragati account for the middle class, and technological innovations are contributory under-banked. The ATM recognises the customer through their factors, according to a Celent report, ‘Overview of Indian thumb impression and can interact in regional languages. Banking Market’. The industry is focusing on the retail side of the market, with China a Compound Annual Growth Rate (CAGR) of 23 percent in Estimates about the numbers of unbanked Chinese vary. The the past five years. However, despite this thrust on retail banking, People’s Bank of China (PBC) estimates that only 36 percent banks will have to come up with creative and simple solutions to of Chinese rural households have access to financial services. As make money in India. This is because India has a huge unbanked one indicator of demand, the informal finance market has been population and unless this is included, neither will banks prosper, estimated at anywhere between CNY 1 trillion ($132 billion) to nor the country. CNY 2 or 3 trillion. Banks have also realised the potential of this market and But the bigger Chinese banks have for many years now have come up with innovative means of reaching it. They are been moving out of rural areas, goaded by commercialisation going back to rural pockets for financial inclusion. State Bank and competitive pressures. According to the State Council of India is drawing up plans to reach out to 100,000 villages. In Development Research Centre (DRC), the four big state banks September 2007, ABN Amro Bank announced its microfinance have reduced their presence in rural areas by over 43 percent in division had provided basic financial support to some 500,000 ten years, closing 30,000 branches in the last five years alone. underprivileged households. Building more branches in the countryside may not always The Chinese government has launched several initiatives be cost-effective. So banks need to explore other options by to test out new forms of rural financial service providers. developing a better understanding of what rural households need Among them: and offer new products and distribution networks to suit them. • The People’s Bank of China in December 2005 launched Providing banking services through ‘Banking Correspondents’ a pilot initiative to establish Microcredit Companies using represented by self-help groups, NGOs and other approved commercial licensing organisations is one branchless banking mechanism. Touch-points • The China Banking Regulatory Commission in December may be set up by such organisations at places commonly visited by 2006 introduced their own pilot, creating new types of the unbanked, such as the village markets or schools. This may be licenses for rural financial institutions supplemented by outreach teams equipped with hand-held devices McKinsey believes that given the reliance on cash in rural on which simple banking transactions can be performed. China and that additional ATMs do not appear to be the answer, June 2009 | 13
  13. 13. the existing mobile Short Message Service network could quickly banking options. This also offers banks a channel for growth. and cheaply provide an SMS-based payment system in rural Similarly, post offices, which constitute more than 50 areas. Since the most expensive parts of the infrastructure — the percent of the physical infrastructure for access to the financial network and phones — are in place, this solution would be sector, could provide an innovative POS alternative to reach out relatively low in cost, between $40 million and $60 million. By to the unbanked. forming a partnership, banks, network operators and merchants According to the August 2003 Datamonitor report, banks in could unlock spending. the region are looking to move beyond branch-centric distribution. The Chinese largely rely on cash payments, thus increasing the This includes extending ATM networks and looking at online and importance of the cash-based e-payment channel. Some leading phone banking. The highest growth in IT spending was expected third-party payment providers are adding cash-based and non- to come from Romania and Bulgaria. bank based payment options to their offerings. These include: 1. Cash remittance: Alipay is a third-party payment provider, Africa allowing users to top up accounts with cash through China’s According to the IMF, African countries are enjoying their postal service. This service was launched in March 2007 in best period of sustained economic expansion since attaining selected China Post branches throughout China. independence. Real GDP growth is expected to rise from 5.7 2. Mobile toll stations: Smartpay, China’s leading mobile top- percent in 2006 to 6.8 percent in 2008. Still, only 20 percent of up company, has formed a network of approximately 30,000 families in Africa have bank accounts. dealers. Smartpay dealers allow users with bank accounts to easily use Smartpay’s services, which in turn gives Smartpay access to a much wider range of potential users. 3. Targeting the unbanked with pre-paid cards: e-payment player IPS uses mobile and telephone prepaid cards in order to reach unbanked users. This service takes advantage of the popularity of prepaid top-up cards used for phone bills, online games, and virtual currencies in China. The cards are usually purchased with cash at newspaper kiosks, small shops, and internet cafes. IPS operates a service called Ipay. Eastern Europe In Poland, only 50 percent of the country’s population has a bank account, according to ING Group. Banking penetration was 69 percent in Hungary at the end of 2003. Many East European (EE) residents avoid setting up bank Katimba market, Central Kampala, Uganda. Credit accounts because they lack confidence in the banking system. This mindset is gradually changing as governments encourage Ethopia has less than one bank branch per 100,000 people – a salary payments directly into bank accounts. developed nation like Spain has an average of 96 branches. Even Austria’s Erste Bank has the largest network in the region and in South Africa, where the sector is more sophisticated, only 40 intends to target the unbanked in Hungary, the Czech Republic, percent of adults have bank accounts. But there is a huge demand Croatia, Serbia and Romania. Western banks in EE are focusing for bank services. Finding this demand unfulfilled, millions of on meeting the needs of the younger population. In Poland, only Africans turn to informal services or invest in cattle. 49 percent of people over the age of 15 have a bank account, But banks are increasingly adopting innovative methods. South according to Polish research company Pentor. Africa has physically taken branches to the unbanked, either as Almost 40 percent of Poles who participated in a recent banking prefabricated units, or in vans that make visits to under-served survey attributed the low level of banking penetration to their lack areas. In remote areas, machines have been installed in shops where of savings. Only 5 percent of Polish people use Internet banking, customers print out a slip and present it to the shopkeeper, who against an average of 24 percent in Europe as a whole; 4 percent provides the cash. Some rural branches and ATMs rely on solar of Poles use telephone banking services compared with 7 percent energy and satellite phone. in Europe, according to Forrester Research. The ‘Big Four’ banks of South Africa (ABSA, First National To make it easier for Poles to access banking products, ING Bank, Nedbank Group and Standard Bank) and the government Bank Slaski, the Polish operation of ING Group, has simplified developed the innovative Mzansi account in 2003 which is a some products. The new offerings include a savings account which low-cost transaction account. It enables banks to cover at least offers one flat interest rate and a low-interest credit card. 70 percent of the unbanked market in a relatively short time. Plastic card technology is expected to present the banking The government provided a small subsidy to cover the cost. It is industry with an important means of tapping the unbanked targeted at people who earn less than R2,000 (US$264) a month. market. Moreover, according to Global Insight, electronic It now has more than 4 million subscribers. payments are expected to grow from $3.8 billion in 1999 to $25.8 Studies conducted by Genesis Analytics for the Finmark Trust billion in 2009, thus indicating greater use of non-traditional in 2004 have suggested that point-of-sale (POS) facilities can play i4d | June 2009 14
  14. 14. an increasingly important role in providing the unbanked access to basic financial services in South Africa. West African financial services biggies Zenith Bank and Ecobank and multinationals Citibank and the International Finance Corporation have set up the Acción Microfinance Bank in Nigeria. It aims to provide low income earners and entrepreneurs with credit facilities and finance. Mobile banking seems to be the most promising option in Africa. Few Africans may have bank accounts, but many have mobile phones. Wizzit (a financial services provider), First National Bank (FNB) and MTN Banking (a joint venture between Standard Bank and a mobile-phone network), are targeting the 14 million unbanked South Africans. In Kenya and Botswana, 17 percent of the unbanked own El Alto Market. Credit a mobile phone, according to the FinMark Trust. In Kenya, Vodafone and Safaricom, Kenya’s leading mobile operator, about 5.1 million customers and 1800 branches. It has grown launched an m-commerce payment service, M-PESA, aimed at the steadily in recent years by concentrating on personal lending, unbanked in March 2006. Within three months, it had 150,000 car financing, insurance, and investment funds. It helps that customers, with 2,500 new users signing up each day. local interest rates are dropping and that Brazil’s government First Bank linked-up with Nigeria’s second biggest mobile has introduced incentives to increase credit. For example, operator, Globacom. The partners introduced the GloFirst card payroll loans, whereby installments are debited from paychecks in conjunction with the switching company Interswitch. GloFirst are now permitted. can be used to withdraw money, check card balance, print mini In Brazil, banks are using nonbanking outlets, such as kiosks statements, change the Personal Identification Number (PIN) and and even supermarkets, to reach customers. However, the central transfer money to another cash card or bank account. bank’s efforts in the way of promoting community representatives or agents and microfinance efforts are slowly bringing more of the Latin America unbanked into the mainstream. Chile reports the highest penetration and the lowest percentage However, obstacles remain: agent-handled accounts are subject of its population living below the poverty level. It is followed by to transaction limitations, interest rate caps render microcredit Brazil, where the majority of households have checking accounts unprofitable and credit information is scanty. because most payrolls in the formal economy are disbursed Electronic payments in Latin America are slowly taking off, but electronically. Until recently, 40 million Brazilians had no access are hampered by factors such as low income and lack of banking to banking services. Nonetheless, access to consumer credit in penetration. Banks are trying to keep the reform momentum Brazil is mostly limited to the middle and upper class, and even going. For example, Mexico has launched a three-year public- foreign banks target primarily customers with an annual income private initiative to expand the number of chip-enabled point of of at least $20,000. sale terminals. The goal is to divert the use of cash taken from In Mexico, the formal banking sector has targeted only the ATMs to POS debit-card transactions in its continuing battle to top 15 percent of the population, while the other 85 percent is suppress the informal economy. considered too risky and unprofitable. Now, however, more foreign banks in the sector have begun to pay closer attention to the retail Conclusion credit card business and other remittance-linked products. In The numbers involved in meeting the needs of the unbanked Colombia, where 55 percent of the population lives under poverty may seem daunting, but in reality they represent a billion-strong level, access to bank credit is low at 23 percent. opportunity for banks. By paying greater attention to their wants Therefore, Latin America’s huge unbanked population offers an and developing sensitivity to their needs, banks will be able to enormous opportunity for banks recognising their potential. To develop customised products and include the unbanked in their serve the banking needs of a relatively low-income economy with scheme of things. low penetration requires innovative and imaginative non-branch Banks may do well to remember that they have a business solutions. Microfinance and IT are enabling banks to serve the imperative in converting the periphery into the mainstream. excluded at relatively lower costs. Banks are also helping create Gautam Bandyopadhyay financial literacy with the help of community leaders. Principal Consultant at Infosys Technologies Bancomer, one of Mexico’s nationalised banks, is reaching out to the lower-income segment by offering simplified and more References: accessible products, such as pre-paid credit cards or cards with fixed Research by Boston Consulting Group monthly payments. To cultivate a culture of savings in Mexico, Research by Celent McKinsey Quarterly Bancomer has made available a savings account-debit card combo The Economist for a minimum deposit of about $70. The Financial Express Santander Banespa, a Spanish-backed bank in Brazil, manages June 2009 | 15
  15. 15. MICROFINANCE IN INDIA Microfinance: A bigger picture The term, ‘Microfinance’ refers to the services. Some major initiatives include that the NFBC must have a minimum provision of a broad range of financial the bank linkage programme under US$ 46,511.6 Net Owned Funds (NOF) services to low-income households the guidance and supervision of the that will make it eligible to accept public and their microenterprises. Financial National Bank for Agriculture and Rural deposits. RBI introduced a new regulatory services generally include microsavings, Development (NABARD) in 1992, the framework for the NBFCs in 1998, focused microcredit, money transfer vehicles setting of the Rashtriya Mahila Kosh to on NFBC accepting public deposits with and microinsurance. Microfinance re-finance microfinance activities of NGOs a view to safeguarding the interests of the services are generally provided by formal in 1993 and the establishment of Small depositors. RBI also established a Micro institutions, such as rural banks and Industries Development Bank of India Credit Special Cell in 1999-2000 to cooperatives, semiformal institutions (SIDBI) Foundation for Micro-Credit suggest measures for augmenting flow of such as non-government organisations; (SFMC) as a financier of Microfinance microcredit. In the same year, NABARD and informal sources like money lenders Institutions (MFIs). On the policy front, established the Task Force on Supportive and shopkeepers. RBI has come out with directives on Policy and Regulatory Framework for Micro various aspects of microfinance provision. Credit. Based on the recommendations of Need of microfinance in India Releasing the fact that Self-Help Groups the Advisory Committee on Flow of Credit Statistics from the World Bank estimates (SHGs) and NGOs are a priority sector, to Agriculture and Related Activities from that more than 87 percent of India’s poor RBI engaged them in microfinance the Banking System, in its Annual Policy can not access credit from formal sources business by registering them as Non- Statement for the year 2004-05, RBI and therefore have to depend on money Banking Financial Companies (NBFCs). stated, in view of the need to protect the lenders who charge them exorbitant As a result, commercial banks, regional interests of depositors, MFIs would not be interest rates ranging from 48% to 120% rural banks (RRBs) and cooperative banks permitted to accept public deposits unless per annum or even higher. This shows have also emerged as important channels they complied with the extant regulatory that the potential market of small money of microfinance provision. framework of the Reserve Bank. lenders, who can lend money according to Through the RBI (Amendment) Act, T h e Mi c ro Fi n a n c i a l Se c t o r the demand for financial services for this 1997, RBI made it obligatory for NBFCs to (Development and Regulation) Bill, section of the society. The provision of such apply to RBI for certificate of registration. 2007, was introduced in March 2007 services, if implemented correctly, could One of the conditions for application was which applies only to three categories of have a significant impact on the poor. Releasing this Table 1: Growth of linked SHG’s in the regions fact, under the Reserve Region Beneficiaries Bank of India Act, 1934, % % RBI undertook regulation March March March March increase between increase between Share of Share of BPL and supervision of all the 2004 2005 2006 2007 2005-06 2006-07 population population banks promoting and doing North 52,396 86018 133097 182018 6% 6% 13% 7% microfinance. North 12278 34238 62517 91754 3% 3% 4% 3% East Regulatory East 158237 265628 18% 18% 394351 525881 22% 29% framework of microfinance in Central 127009 197365 267915 332729 12% 11% 25% 32% India West 54815 96266 166254 270447 7% 9% 15% 14% In early 1990s, there have South 674356 939941 1214431 1522144 54% 52% 21% 15% been many significant state initiatives in the institutional All India 1079091 1618456 2238565 2924973 100% 100% 100% 100% and policy spheres to enable the poor access financial Source: Poverty Estimates for 2004-05, PIB, Government of India, New Delhi, March, 2007 i4d | June 2009 16
  16. 16. not-for-profit MFIs: societies, trusts and cooperatives. These Table 2: Region-wise growth in outreach in 2003-04 and 2004-05 are collectively referred to in the bill as Micro Finance MFIs by No. of Outreach - FY Annual Growth Annual Growth Organisations (MFOs). regional MFIs 2005 (%) in outreach (%) in outreach distribution FY 2005 FY 2004 Progress under the SHG Bank Linkage East 18 332476 61.12 32.68 Programme (SBLP) West 2 6,738 31.4 42.15 India has seen an average annual growth rate of 82 percent in providing microfinance services through SHGs in the period from North 3 91317 11.34 19.5 March 1993 to March 2006, in relation to a 110 percent growth South 45 1710323 67.5 51.73 rate in terms of credit amount. SHG Bank Linkage Programme Total 68 2140854 62.86 45.94 has proved to be the major supplementary credit delivery system with wide acceptance by banks, NGOs and various government Source: Poverty Estimates for 2004-05, PIB, Government of India, New Delhi, departments. During the financial year 2005-2006, around March, 2007 620,109 SHGs were linked under the SHG Bank Linkage Table 2 shows that growth is concentrated in two regions, the Programme, it incorporates more than nine million households South and East, which already account for about 95 percent of into the financial sector. membership. The 31 percent growth was recorded in the West, According to the NABARD Annual Report 2007, the western on an extremely small base, while only 11 percent growth was region of India has experienced 63 percent of growth in its entire registered in the North, among a larger base. With financial region. Table 1 shows that the growth rate in eastern region was support from government for SHG programmes the establishment 33 percent and in central region, the growth rate was 24 percent. of a large number of MFIs following the SHG model has The figures also show that the southern region is leading in been registered. the programme. During the financial year 2005-2006, Andhra From the perspective of the legal framework (Fig 1), the Pradesh had further consolidated its role as the leading state in the proposed new microfinance law does not cover nearly 80% of size of SHG movement by holding 279 households participating in these clients since 73% are served by NBFCs or MFIs on the SHGs for every 1,000 households. During this period, the number verge of transformation to NBFCs and another 6% by Section of new loans in Andhra Pradesh, remained about the same but the 25 (not for profit) companies. Such institutions fall outside the number of repeat loans increased by 31 percent/year. Himachal ambit of the proposed law. Pradesh, Kerala, Assam, Rajasthan, West Bengal and Maharashtra formed an intermediate group with 94, 85, 82, 65, 61 and 56 households participating in SHGs for every 1,000 households, respectively. In Uttaranchal and Jharkhand there were less than thirty-two households participating in SHGs for every 1,000. In Jammu and Kashmir, Haryana, Punjab and Arunachal Pradesh there were less than ten households participating in SHGs for every 1,000 of the total households. MFI performance: Efficiency with growth The MFI model in India is characterised by a diversity of institutional and legal forms. The first and most well known MFI, SEWA, was incorporated as an urban cooperative bank in 1974 and demonstrated that poor people were bankable. In the 1980s, a number of registered societies and trusts commenced group-based savings and credit activities on the basis of grant funds from donors. MFIs of all legal forms have their own funds or are built up mainly from; (i) donor grants in the case of societies Source: Poverty Estimates for 2004-05, PIB, Government of India, New Delhi, and trusts, (ii) equity investments and promoters’ capital in the March, 2007 case of companies, (iii) shareholdings in the case of cooperatives, as well as (iv) retained earnings in the case of all three categories, Progress under social performance the main source of funds is debt, borrowed from the banks and MFIs and those who work for MFIs like banks, investors, and apex financial institutions. donors are social enterprise. For any MFI, financial sustainability In the last decade, the MFI model has seen a series of critical is important. An MFI that can cover its costs - has good financial developments in the Indian MFI sector. According to the estimates performance - can grow to serve more clients in more areas. of 2006 Annual Report by Microfinance India, joint effort of Social performance in microfinance is defined as “the translation Care, Ford Foundation and Swiss Agency for Development and of mission into practice in line with accepted social goals”: These Cooperation (SDC), Large MFIs are more efficient in the disbursal social goals relate to: of funds with 81 percent of total assets held as loans, as against • Reaching the poor or excluded clients 75 percent in the case of medium and small MFIs. • Improving the quality and appropriateness of financial June 2009 | 17